Avoiding pitfalls in strata property investments

WITH land for property developments shrinking by the day especially in the Klang Valley, many property developers have been moving towards higher density developments.

These include stratified properties and integrated developments which involve high-rise components, said Exastrata Solutions Sdn Bhd chief real estate consultant Adzman Shah Mohd Ariffin.

Statistics from the National Property Information Centre (Napic) showed that as at end-2015, about six million or 30% of Malaysians were staying in 1.5 million residential strata properties.

On top of that, there were about 16,000 completed residential strata developments as at end-2015, Adzman told the audience during a talk at the Malaysian Annual Real Estate Convention 2017 (MAREC‘17) organised by the Malaysian Institute of Estate Agents on March 4.

There is no doubt that strata residential properties, especially those that come with a wide range of facilities and features, have become increasingly popular not just for homebuyers but also as investment property, he said, adding that such properties are also relatively easier to market and dispose off.

“If you look at the housing loan applications for the past six months, 75% of them came from first-time homebuyers, who could probably only afford properties priced RM400,000 and below. And what are the properties that are within this price range? They are strata properties,” he added.

As an investment property, non-landed residences tend to offer more attractive rental returns than landed residences.

“According to a media report published about six months ago, a well-managed condominium is able to offer high yields of 5.5% to 6%, especially those in Mont’Kiara, while those in other areas in the Klang Valley can offer returns of up to 4%, compared with 2% to 3% from terraced houses and bungalows,” he said. Hence, strata properties can be good investments.

However, when investing in strata properties, some homework needs to be done before purchasing the property. Adzman noted that there are a lot of strata property owners and investors who do not understand or ignore the concept of strata properties, the responsibilities of a strata property owner as well as laws pertaining to strata property such as the Strata Titles Act. Such ignorance or apathy could lead to problems with their investment.

“The Strata Titles Act actually affects the way we live. In addition, the Ministry of Urban Wellbeing, Housing and Local Government has plans to review the Act to improve it further, so this is how dynamic the situation is when it comes to strata living,” he shared.

Failing to understand and embrace their responsibilities as strata property owners, such as paying their charges on time, or failing to jointly undertake the responsibility of managing the building’s common properties, or failing to familiarise themselves with the Strata Management Act 2013 may also cause the owners a lot of trouble when problems arise later, said Adzman.

If the owner is one of the committee members of the joint management body or the management corporation and fails to do the job of managing the property, he or she could be sued by the other owners for not fulfilling the duties of a property manager, he said.

He added that as a strata property owner, one should also understand the role of the management committee and monitor their performance because a well-managed property will offer better value.

Hence, he advised owners to get to know their management team and find out if they are capable of managing the property.

Meanwhile, Adzman also warned investors to avoid strata properties with legal issues, those with a lot of maintenance issues as well as those built by dodgy developers or developers that are not registered with the ministry.

He also thinks that investors should avoid investing in properties that have been under the Master Title for a long time with no prospect of getting their own Strata Title anytime soon.

In addition, strata property investors should always study their investment options before making the final decision.

“When you are looking for a property to invest, you need to check out the surroundings of the property, including cleanliness, operational condition of the facilities, upkeep of the common areas, and others. You need to be active in your research as there are a lot of things to look at,” he said.

He pointed out that investors should also consider the occupancy rate of the property to ensure that it is adequate enough for the collection of sufficient maintenance fees and charges in order to maintain the facilities and common areas.

Investors should also identify units with the best value in a strata building. For example, units on higher floors are usually more expensive as they offer better views. However, if units on the lower floors are cheaper but are able to accord the same view, investors should go for the lower units, he said.

Meanwhile, there are plenty of opportunities in the primary, secondary and auction markets for non-landed strata residences, but investors have to scan through them all to find the best deal, he added.

“If you think about your investment well, you can avoid a lot of headaches. Try to avoid properties with a lot of issues and, at the same time, please understand what comes with the ownership of strata properties. And again, you have to make sure your investment gives good returns,” Adzman concluded.

This story first appeared in TheEdgeProperty.com pullout on March 31, 2017. Download TheEdgeProperty.com pullout here for free.